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Saturday, February 07, 2009

When listening to President Obama's dire predictions of "catastrophe" if a stimulus bill is not passed now now now now now, is anyone else reminded of the global warming debate?

Even most skeptics about what Taranto calls "global warmism" would concede that there are valid reasons to want to reduce the use of fossil fuels and the resultant greenhouse gases. The debate arises over what measures should be taken, and how urgently. (Now now now now now!)

Similarly, there seems to be widespread consensus that the economy is in terrible shape, and that an increase in economic activity would help. The debate arises over how best to stimulate the economy, and how urgently.

In both cases, proponents of "doing something" now now now now now maintain that there is no time to worry about the possible side effects. But I firmly believe that when everyone around you is clamoring for immediate dramatic action, that's exactly the right time to take a deep breath and think hard about the consequences. A few years from now the specifics of the stimulus package will be a lot more important than whether the bill was passed in February or March.

The one thing that seems clear to me is that if we are going to make a multi-hundred-billion-dollar effort to stimulate the economy, it should be done through a combination of a) tax cuts for lower-income people (pushing stimulus activity down to the individual level, among people who are likely to spend) and b) accelerating government spending that is destined to occur anyway.

That, of course, is not what the Democrats are planning. Here's Krauthammer, on the "fierce urgency of pork" behind the "legislative abomination" that is the stimulus bill (emphasis added):

It's not just pages and pages of special-interest tax breaks, giveaways and protections, one of which would set off a ruinous Smoot-Hawley trade war. It's not just the waste, such as the $88.6 million for new construction for Milwaukee Public Schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools and, quite logically, no plans for new construction.

It's the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus -- and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress's own budget office says won't be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish. He said.

Krauthammer was writing about the House version of the bill, but I've seen little reason to believe that the Senate compromise reached last night is any better.

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.

Note that by allowing governors (and I think you'd have to include state legislators) to determine whether to substitute spending for tax cuts, Mankiw's proposal would mean that any decision about whether to build schools in Milwaukee would be made in Milwaukee, or at least in Wisconsin. And by gradually increasing the gasoline tax to offset the immediate payroll tax cut, the proposal would even... wait for it... help counteract global warming.

10 comments:

Sounds a lot to me like the weapons of mass destruction argument. There's a fervent near religious-like atmosphere where we're expected to simply believe, ignore the naysayers, and act.

A Salon.com reader put it more pointedly than I:Have you noticed how much the call for combating global warming crusade has in common with how we got into the Iraq war?

In both cases, there are "experts" who tell us that evidence justifying action is undeniable. They say, "The risk of doing nothing is too great for us to do nothing." And as a fallback position they say, "Even if we're wrong, we'll still be doing some good in the world."

Kind of makes me think man-made CO2 emissions will turn out to be the biggest case of nonexistent WMD since Saddam Hussein's nukes. (Or maybe even bigger!)

Hm... Scott, thanks for the comment. I continue to support the decision to go to war in Iraq, so I'm inclined to resist the analogy you're making.

Here's where I think your analogy breaks down: The merits or demerits of invading Iraq were openly debated for fully six months before the invasion began. The idea had been floated in policy circles for 18 months (since shortly after 9/11). And the fact that Saddam was an evil man and an enemy of the United States had been established 12 years earlier, in the first Gulf War. The bill authorizing force in Iraq passed with broad bipartisan support, five months before the invasion began.

The current financial crisis has been under way for nearly six months, but the debate over specifics of a stimulus package started shortly after Inauguration Day, less than three weeks ago. Opinion on the stimulus runs almost completely along party lines.

Kirk,Below you cite the longevity of the debate regarding WMD as justification for the Iraq war: "The idea had been floated in policy circles for 18 months (since shortly after 9/11)." I'm a little skeptical that any length of debate would have been enough in this case because the Bush administration was selecting data to get the result it wanted.

In contrast, the theory underlying global warming has been the subject of scientific inquiry for about 185 years! It was first posited in 1824 by Jean Baptiste Jospeh Fourier. Climate and environmental scientists have been studying it with increasing scrutity since the 1970s. I studied it at Princeton with Prof. Robert Socolow in 1978, and what I learned in that course has led me to choose a career related to promoting increased energy efficiency (which is good for our national security also).

Also in contrast to the WMD charade, the science behind global warming has been thoroughly and publicly vetted for the best 25 years or so. It has been affirmed, based on extensive study, by the Intergovenmental Panel on Climate Change, for example.

Thirty years ago I thought our society needed to act with all due haste to address climate change. Now I've changed my tune: I fear we may be too late.

I'll certainly grant that there is a lot of evidence that global warming exists and is potentially harmful and needs to be addressed. My skepticism is about whether there will be a catastrophe if we don't take dramatic action.

Wow, nice to see how a post about the stimulus plan was almost turned into a discussion about WMD and the Iraq war.

Anyway, the stimulus will not work and be counter-productive. Over $500 Billion of the proposed stimulus have nothing to do with the economy to begin with. The failure of any of the discussed version of the stimulus will be evident once it is too late.

The only thing the stimulus will do is stimulate a recession into a depression.

An extreme reduction of federal and state income tax (20%+) as well as the elimination of capital gains taxes would stimulate the economy. As a matter of fact there could be 0% income tax and a 0% capital gains tax but a flat (8% for example) consumption tax.

The government should privatize just about everything since they clearly do not know how to operate anything (especially when money is involved). Once the government has its hands out of everything the need for the government to earn revenues through high taxes is eliminated as well and the 8% consumption tax will provide sufficient revenue to budget the few small programs in government hands.

This would eliminate all those pathetic social programs, give consumers a strong boost since they will receive higher net paychecks and revenues as well as see more overall progress with modernization and implementation of new ideas, products etc.

There needs to be an extreme overhaul of the entire system as even the most pathetic socialist (democrat if you prefer) should have realized that the entire system was set-up for failure.

The idea to rely on credit and debt to finance your lifestyle is beyond ridiculous.

Paul, I agree the Rahm Emanuel quote is telling. I wouldn't necessarily mind if the administration tried to use the crisis do a "big thing," if it were a carefully chosen big thing that we could debate and consider. Greg Mankiw's taxation suggestion would be a big thing, for example. But the Christmas-tree spending bill is not a big thing, it's a huge collection of expensive little things.

Apollo, I'm glad you like the post, but I can't sign on for your "extreme overhaul" (although it would certainly be a big thing!) Far from being "set up for failure," the system we have has produced by far the strongest economy in the world. We may need to make some adjustments, but I don't think we should tear the system up and start over.

Journalist Naomi Klein wrote a very popular (among Progressives and Liberals) and absurdist tome on the Machiavellian tactics used by capitalists (Somehow she blamed Milton Friedman for the lot of it) all over the world to install their vision of economics during a crisis. Yet, when liberals or progressives use similar alarmist language and tactics, they feel that their cause is beyond reproach, dissent, or even discussion. According to self stylized climate saviour, Al Gore, there is no time for discussion on GW because it is a "moral imperative" for it to be solved by any means and right now: invoking morality is an effective crisis mechanism that easily shuts down debate. Despite warnings by the CBO, we are going to get a crisis inspired stimulus that will balloon the national debt.

@Kirk: The system has created the strongest economy on the surface for a limited amount of time (just like a mutual fund who gives you an annual headline 'fake' of a 6% gain but in reality you have lost money). The economic problems started over three decades ago, the economy has borrowed its way to strength but underneath there was little substance.

You can compare the economy to a sky-scraper built on a foundation for a single-family home. It was clear that it will collapse.

The system for some time has faked strength but was destined to collapse which is the reason why it needs to be torn down completely (there is little left right now anyway) and rebuild with intelligence for sustained growth which will benefit a broader range of the economy which in turn will fuel economic growth.

Sure, right now it is a topic which can be debated back and forth but once it becomes evident it is too late. The economy will experience problems for over a decade from now (similar to Japan but a little worse after their huge bailout/stimulus idiocy in 1999).

A ship which sinks will hit rock bottom and stay there so why would you load more goods on to the sinking ship?

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